Coach, Inc. (COH), the designer and marketer of fine accessories and gifts, recently posted better-than-expected second-quarter 2011 results on the back of healthy sales in North America and China.
The quarterly earnings of $1.00 per share beat the Zacks Consensus Estimate of 97 cents, and surged 33.3% from 75 cents delivered in the prior-year quarter buoyed by strong top-line growth.
The current Zacks Consensus Estimate had inched up by a penny in the last 7 days, prior to the earnings release, with 2 out 20 analysts covering the stock revised their estimates upwards.
The New York based company, Coach, said that total net sales for the quarter came in at $1,264.5 million, up 18.7% from the year-ago quarter, and breezed past the Zacks Consensus Revenue Estimate of $1,202 million.
Direct-to-consumer sales jumped 17% to $1.10 billion driven by a 12.6% rise in the North American comparable-store sales and strong growth in the China business with a double-digit rate increase in comparable-store sales. In Japan, sales remained flat, excluding foreign currency translation, whereas in dollar terms, sales climbed 8% adjusted for a stronger yen.
Indirect sales rose by 28% to $168 million due to the increase in U.S. department stores shipments and international wholesale shipments.
The rise in sales was a positive indication for the luxury-goods market, battered by the recent economic downturn. Coach’s sustained focus on store sales productivity, merchandising, marketing and strategic pricing have helped it remain afloat in a difficult consumer environment as well as drive comparable-store sales and operating margins gain.
Gross profit soared 18.7% to $915.2 million on the heels of double-digit growth in the top-line. However, gross profit margin remained flat but was strong at 72.4% benefiting from lower sourcing costs. Operating income surged 19% to $453.3 million, whereas operating margin increased marginally by 10 basis points to 35.9%.
Management remains confident of sustaining double-digit growth in both top and bottom lines. The company’s long-term growth drivers include expansion of its global distribution model and entry into under-penetrated markets.
During the quarter, Coach, the maker of handbags, wallets, shoes and other accessories, opened 2 retail stores, and opened 1 factory store in North America, taking the total to net 347 retail stores and net 129 factory stores at the end of the quarter. In Japan, the company opened 1 store with a travel retail location, bringing the total number of locations to 171. In China, an addition of 3 new locations during the quarter took the total to 52.
Coach maintains a healthy balance sheet with a significant cash balance and a negligible debt load. The company also has been proactively managing its cash flows by making prudent capital investments and enhancing shareholders’ return. The company’s strong liquidity, positions it to drive future growth.
The company ended the quarter with cash, cash equivalents and short-term investments of $939.8 million and total long-term debt of $23.6 million with shareholders’ equity of $1,738.5 million.
Coach also notified that it bought back approximately 7 million shares at a cost of $55.72 per share, aggregating $388 million during the quarter. The company recently authorized a share repurchase program of $1.5 billion to be exhausted by June 30, 2013.
We have a long-term ‘Neutral’ rating on the stock. Moreover, Coach, which competes with Polo Ralph Lauren Corporation (RL), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, and correlates with our long-term rating.
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